BIR Ruling No. 360-2022

REPUBLIC OF THE PHILIPPINES

BUREAU OF INTERNAL REVENUE DEPARTMENT OF FINANCE

Quezon:City

01-360 -2022 Sec. 41 (i), Tax Code of BIR Ruling No. 049-16 1997, as amended AUG1 22022

Panabo Trucking Services, Inc. Bo. Antonio O. Floirendo Panabo City, Davao Del Norte

Attention: Mr. Alfred E. Samson Chief Financial Officer

Gentlemen:

This refers to your request on behalf .of Panabo Trucking Services, Inc.

Internal Revenue Code (Tax Code) of 1997, as amended, to change its inventory method ("PanTrucks" or the "Company") for authority pursuant to Section 41 (i) of the National

from First-In, First-Out (FIFO) to Moving Average method for the following inventory items

:batteries; and other supplies effective January: 1; 2021.. spare parts; office supplies; construction supplies; fuel,oils, and lubricants; tires, tubes and

warehousing. ransportation of general cargoes, merchandise: freight auto trucks services, and existing under and by:virtue of Philippine laws. It is primarily engaged in the business of Documents show that PanTrucks is a domestic corporation duly organized and

Per Corporate Secretary's Certificate dated October 15, 2021, the Board of Directors

following items from their respective previous costing methods under Microsoft GP ERP approved and authorized the Company to change its inventory costing method for the

Applications and Products) ERP Software: Enterprise Resource Planning) Software to their new costing methods under SAP (Systems

Spare parts Office Supplies Inventory . FIFO From FIFO Moving Average Moving Average TO

Construction Supplies FIFO Moving Average

Other Supplies Fuel, Oils and Lubricants Tires, Tubes and Batteries FIFO FIFO. FIFO Moving Average Moving Average Moving Average

Panabo Trucking Services, Incorporated Page 2 of '3 ST-36 0 - 2022 AUG 1 2 2022

iwhich recognizes the Moving Average:method for spare:parts, office supplies, construction supplies, fuel, oils, and lubricants, tires; tubes and batteries, and other supplies. :method in costing its spare parts, office supplies, construction supplies, fuel, oils, and lubricants, tires, tubes and batteries, and other supplies. In order to facilitate its cost accounting and optimize the use of its computerized system, the Company will install Computerized cost accounting system (CAS). The CAS to be adopted is SAP ERP Software From the time of its incorporation, the Company has consistently adopted the FIFO

provides: In reply, please be informed that Section 41: of the Tax Code of 1997, as amended,

Commissioner.may, by rules .and regulations; prescribe as conforming as Commissioner, the use of inventories is necessary in order to determine clearly the income of any taxpayer, inventories shall be taken by such taxpayer upon such basis as the Secretary of Finance, upon the recommendation of the nearly as may be to the best accounting practice in the trade or business and as most clearly'reflecting the income. "Section 4l. Inventories. -- Whenever in the judgment of the

prescribed by. the Commissioner, uses a particular method of valuing its inventory for any taxable year; then suchi -method shall be used in all subsequent taxable years unless: : If a taxpayer, after having complied with the terms and conditions

(i) with the approval of the Commissioner, a change to a different method is authorized: or

(ii). the Commissioner finds that the nature of the stock on hand (e.g. method for purposes of ascertaining:the income, profits, or loss in a more" realistic .manner:. Provided, however,That the Provided, further, That any change in an inventory valuation method must be. subject to approval by the Secretary of Finance. (Emphasis provided.) purposes and, therefore, it is necessary to modify the valuation Commissioner shall not exercise its authority to reguire a change in inventory method more often than'once every three (3) years: its scarcity, liguidity,. marketabiliy and price movements) is such that inventory: gains should be' considered realized for tax

Panabo Trucking Services, Incorporated Page 3 of 3 OT- 3 6 0 - 2 0 2 2 AUG 1 2 2B22

Regulations No. 2 states: In relation, to the above section of the. Tax .Code, Section 145 of Revenue

to which each inventory must conform. --.(1) it must conform as nearly as the best accounting practice in the particular trade or business. In order to clearly reflect :income, the inventory practice of a taxpayer should be inventory that can be used under the best accounting practice in a balance sheet showing the financial position of the: taxpayer is,"as a general rule, possible to the best accounting practice in the trade or business, and (2) it must uniform but must give effect to trade customs which come within the scope of consistent from year to year, and greater weight is to be given to consistency than to any particular method of inventoryior basis of valuation, as long as the method of basis used is substantially in accord with these regulations, an regarded as clearly'reflecting his income. " clearly reflect the income. It follows, therefore, that inventory rules can not be "Section I45.Valuation of Inventories... -- The law provides two tests

Section 41 of the Tax Code of 1997, as amended, provided that such method conforms nearly as possible to the best accounting practice in the trade or business, and it will clearly reflect accounting method from FIFO to Moving Average method for the following inventory items: spare parts; office supplies; construction supplies; fuel, oils, and lubricants; tires, tubes and batteries; and other supplies effective "January 1, 2021 pursuant to the provision of the income of the company. FIFO method of inventory costing.. the Company is hereby granted permission to change its adoption of the new CAS, which system uses' the Moving Average method rather than the Since the change in PanTrucks's accounting method is needed because of its

However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. This ruling is being issued on the basis of the foregoing facts as represented.

Very truly yours,

Commissioner of Internal Revenue LILIA CATRIS GUILLERMO hb C Guil

K 000470